Unravelling Panamagate Will be a Challenge For Indian Agencies

No stunning results are expected from an Indian probe into monies stashed away in tiny Panama, writes RK Raghavan.

Life in India may be difficult and miserable most of the time. But it is never dull. The predictable periodicity of our scams of gargantuan proportions adds delightful spice to our lives. We have forgotten Mallya, now holed up in London, to navigate across the Atlantic to descend on Panama to find out how hospitable that tiny country has been to our tax evaders.

The contents of the so-called Panama papers belonging to an efficient and certainly dubious law firm Mossack Fonseca heightens the suspicion that many of our celebrities have possibly parked their funds there for reasons unknown. This has more than shades of the infamous WikiLeaks of a few years ago and has caused huge embarrassment to many of our bigwigs.

Hurdles in Investigation

• RBI’s clarification awaited as those named in the Panama list may justify investments on the basis of prevalent rules.
  
• Clarity also awaited on whether the admitted investments were declared by investors to income tax authorities in annual returns.
  
• The decision not to hand over the probe to the Shah Panel is in the interest of swift investigation.
  
• Due to procedural formalities, at this stage, India cannot undertake any investigation on the shores of Panama.
  
• Progress of the probe will also depend on India-Panama cooperation and the political will of the two governments.
  
  

Memories of Bofors

Interestingly, Panama revives memories of my CBI days, especially in relation to Bofors. One of the accused in that monumental fraud was the late Win Chadha, who incorporated his Sevenska Inc, a shell company, in Panama. When my investigators went there to check on facts they faced a wall of lawyers who doggedly claimed immunity from disclosing any facts. So much for the transparency of public life in that tiny country!

This tells us what we may expect from Panama once we seek authentic details of the scam so cleverly ferreted out of the computer systems of a porous Fonseca which had built its whole business in about 40 countries on the assurance of confidentiality of investments.

Also Read: How Offshore Accounts are Used to Hide Wealth and Avoid Taxes

Loophole in RBI Norms

If newspaper reports are to be believed, the contours of the alleged scandal are clearly drawn and well-documented. Our first impression is that most of the alleged money launderers had taken advantage of RBI regulations on foreign investments which were liberalised in 2004. Any withdrawal of money prior to that year without RBI permission is suspect and would have to be thoroughly investigated.

It is clear that many of those who figure in the Fonseca records will take the stand that their investments in Panama were within the ambit of RBI rules. We have to go by their stand until the RBI gets the details of the investments and verifies if they were in conformity with its regulations.

The crucial point is whether the admitted investments were declared by the investors to the income tax authorities in annual returns. If not, we can draw a prima facie inference that the investments were dishonest and intended mainly to evade payment of taxes lawfully owed by the Indian authorities. The Black Money Act of 2015 will thereafter prevail, subject to the law of limitation, especially because some of the leaked papers go back to nearly four decades.

Bigger than WikiLeaks

On the face of it, the scam has forbidding dimensions spanning most of the globe. The data that requires scanning is said to be ten times the volume thrown up by WikiLeaks. This would give an idea of the magnitude of the task that Indian investigators face. Let us, therefore, have no illusions that we will be able to unravel the mystery behind ‘Panamagate’ in quick time.

I agree with the government’s decision to constitute a multi-agency group to probe the matter. The decision not to remit this to the Supreme Court’s own SIT headed by Justice MB Shah that is pursuing black money is sensible. It offers the hope that the ‘Panamagate’ investigation will be focused and swift. It will utilise the powers conferred on the income tax authorities by the IT Act 1961, as amended from time to time.

One of the first steps for the investigating group will be to assemble all the data that the leak has thrown up. This is a major exercise that will depend purely on what the US-based International Consortium of Investigative Journalists (ICIJ) will dole out to us. There is no reason to believe that it would be wanting in terms of cooperating with our team. The new group can summon those who have been accused of taking away Indian money to Panama illegally.

This is among the powers conferred on Commissioners of Income Tax. Not much can come out of this as those examined will stick to their perceived stand that they had done nothing wrong. They will be encouraged, if necessary, to utter falsehood, because they know that accusations against them were based on media reports and that Indian authorities had no authenticated documents with them.

Tedious Process

At this stage, India cannot undertake any investigation on the shores of Panama. That step will have to be preceded by the registration of a case under our law (possibly the Black Money Act of 2015) and the issue of a Letters Rogatory through an Indian court that the government will later forward to its Panamanian counterpart. It is presumed that the CBI, being the nodal agency prescribed by the government for processing such a letter, will be involved in the process.

For this reason, a nominal CBI presence in the multi-agency group will be expedient. Our experience is that such requests take an enormous time to be acted upon by foreign governments/courts, which dilutes the effectiveness of an otherwise well conducted investigation or an imaginatively conceived prosecution.

Also Read: The What’s What and Who’s Who of the Panama Papers Leak

India-Panama Cooperation

Many of us tend to forget that the cooperation of foreign governments in matters of financial impropriety is invariably tardy. This is because of the lower gravity of such deviance in the eyes of most of Western governments.  The concept of dual criminality is also relevant here.

The misconduct of an individual under probe should amount to a criminal offence in both countries, before a case for sharing information can be made out successfully. If the MEA’s website is updated, there does not seem to be a Mutual Legal Assistance Treaty (MLAT) between India and Panama in place. In the absence of such a treaty India-Panama cooperation will depend purely upon the political will of the two governments and the bonhomie that exists between them. The MEA’s proactive follow-up will matter a lot.

In the ultimate analysis, no spectacular results can be expected from the multi-agency probe. Let us also not jump to hasty conclusions and paint every one of the 500 odd Indians whose names have surfaced, with the same brush. I cannot conceive of many in the list committing any act that even borders on unethical. Hence we will have to be sensitive to well-established reputations that need to be protected. That would be the hallmark of a mature democracy.

(The writer is a former CBI Director)

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